Think of it this way: there isn’t nearly enough demand right now, regardless of whether you (the dealer) discount your inventory or not. I.e., you will not move enough cars to pay for fixed costs like the mortgage on your building, financing the inventory on your lot, etc. The Fed has done various studies on household savings account balances and/or net worth (https://www.valuepenguin.com/banking/average-checking-accoun... and https://abcnews.go.com/US/10-americans-struggle-cover-400-em...). The vast majority of Americans would have to finance a car purchase, even for something like a 10-year old used car. Yes interest rates are low right now, but does it make sense for a consumer to buy a depreciating asset and increase their monthly interest costs at this point in time?
To the car dealer (or rental operation like Hertz), the question is does it make sense to have a fire sale on your inventory now (at prices that will almost certainly lead to an accounting loss), or do you take your chances in bankruptcy court? If you believe that in the next year or two that the market for used cars recovers somewhat, you can sell those assets off during bankruptcy proceedings to pay off creditors etc. There’s a strong case that taking this approach will leave the company as a whole better off in 3-5 years, though equity holders will certainly be taking a huge hit.
> Yes interest rates are low right now, but does it make sense to buy a depreciating asset and increase your monthly interest costs at this point in time?
At what point do you suspect the "vast majority of Americans"--who apparently can't afford to purchase a 10yo used car outright--start genuinely contemplating the financial impact of asset depreciation and overbearing interest in a strategic manner before signing a purchase agreement...you know, the one with all those legal words for lawyers and such? Call me impractical but...$1,201 just chillin' in the bank, yo!
In boom times, it’s probably true that people can develop irrational exuberance e.g., taking out a big mortgage because hey, housing prices are going up everywhere. When things are good, maybe you don’t budget so precisely. I know I don’t!
But when ~20% of working age Americans are living off unemployment benefits, and millions more who work in industries like restaurants, hospitality, and travel facing the possibility that they will likely never have a job to go back to, my guess is that you’d have to be pretty well off (or very optimistic) to take on an additional $100/month car payment, not to mention adding a car to your insurance policy etc. :)
I don't know man...I mean $1,201 is lot of presidents just waiting to be put to work! That's like downpayment on a practically new set of wheels and enough herb to last until facebook says the unemployment website is fixed. Might not have another global panedemic like this ever again, and as the old saying goes: you miss 100% of the shots you don't take. Opportunity's callin' my name!
Jokes aside, people who live life along this asymptotic approach are real, where the only conditional that registers is, "the current number in my bank account is still bigger than the number on this bill...which is completely optional 'cause repo ain't gonna find me this time, ha!"
You're getting downvoted, but it's actually quite staggering how many people live this way, even when they really can't afford to. A UPS warehouse worker I know just bought a $60k car because he got a "really sweet deal", even though the monthly loan payment is significantly higher than his rent.
I went to Nevada a few weeks ago from the Bay Area and bought a very clean car at about 60% of what I would have paid for a similar Craigslist listing here in the Bay Area. If you are willing to travel a bit the deals are out there to be had.
On that note, back in 2015 I found a nice gentlemen in Los Angeles who was a Prius enthusiast who would drive over to Phoenix/AZ and buy used ones, drive them over to LA and privately re-sell them. The Prius I bought from him (2005 model) is still being driven by my father five years later.
I have never, ever, had a good experience at a Hertz (or most of the other majors to begin with). The process of renting a car is one dark pattern after the other, from the website, to the real-life rental location, even the cars themselves. Every experience was at best frustrating, typically rage inducing. I won't miss them.
The last time I rented a car, I pre-paid everything online, so I was hoping to just pick up the car after a long flight. However at the airport, the new bill the presented me was 10 times higher because they tried to get me to another car (claiming they’ll give a discount), they don’t present you with the no insurance option. I had to explicitly ask them to just give me the car I had paid for.
I always rent through some sort of AAA (automobile club). Almost each country does have a similar organization.
I do mostly rent my cars through ADAC (German AAA) which usually comes with unlimited miles, no excess insurance(s), young driver benefits, free additional driver, ... and a hotline which just 'works':
Hertz once charged a pretty extra on a prepaid rental. One call to ADAC complaining about the extra charge and I had my money back a week later.
The process of renting a car is one dark pattern after the other
I also despise dark patterns that car rental involves. Fortunately, two things make it easy to rent a car from Hertz (or probably any other major):
1) work for a company that has a corporate rental agreement with Hertz. All the bullshit about collision damage waivers, liability insurance, etc. just goes away.
2) sign up for their "rewards" program (the name differs by company). This puts all your important info into their computers. That way they aren't constantly re-entering info from your drivers license, etc.
3) There is a third option. You should rent trucks instead! :)
Just kidding about trucks being a real alternative. But whenever I rent from U-Haul it's absurdly pleasant, compared to renting cars as an individual. For example, the collision damage waiver for a car rental can be $30 a day or more. The same thing was only $10 on my most recent U-Haul rental.
Whenever I try to rent a car from somewhere like Hertz I'm presented with a baffling array of choices for waivers and insurance. I have absolutely no idea what I'm supposed to buy and how the insurance works.
They want me to pick and sign right there under pressure and with no time to read the agreement. I'm almost always left with no real understanding of what happens if I have a crash and pretty worried that I may be liable for more than I'm worth.
It's comical they way they wave those barely readable sheets of paper around randomly circling things and putting crosses in places.
Yeah, you gotta be a Gold member (or equivalent at other places) to get around this BS and do it all online / before you show up. I agree that the stock experience is miserable. Fortunately through AMEX it's free, same with Delta if you're any sort of status, etc etc. It's a method of gatekeeping.
I will. I don't have a car, but sometimes I need it so I typically go to Avis. I had very good experience with Avis almost always. Nice clean cars, friendly personnel, sufficiently convenient website. I frequently get free upgrades to premium or bigger cars.
ZipCar, another car-sharing service I sometimes use is horrible. Dirty cars, annoying stupid website, refuel credit cards almost never work, so I have to use my own and submit refunds.
All car renters are full of dark patterns but in my experience Hertz was the best one amongst them.
After a while you realize how it works: Use some CDP code to rent for cheap on their website and refuse all the addons that are pushed onto you at pick up (where they are trained to scare you). That clears 99% of the dark patterns
Working in this industry I can tell you that it can be in your interest to buy either damage waivers or supplemental insurance. Especially when you are renting larger vehicles. People often don’t realize how much it costs to repair a panel truck. At the very least review your insurance policy to make sure it covers non owned autos. It really sucks when a customer finds out after the fact that their insurance is not going to cover their accident.
I’ve seen customers get denied by their auto insurance and 2 credit cards. Just because a credit card provides coverages it doesn’t mean it covers everything. Insurance is complicated and you should never assume you are covered.
I hated car rental companies every time I had to use them, even if it was being charged to a company I was visiting.
That changed after I became 26. Tons of extra fees and requirements are tossed on younger drivers which turned out to be most of the pain I had with them. Just aging made the rental process so much nicer
The fact that it might be a rational business decision doesn’t mean that it isn’t also an indicator of a diseased company culture. I can’t imagine my employer announcing that 10k jobs will be cut but senior management keeps full pay...
Well yeah the company is as diseased as it could be - it's dying.
Why would they care what you or their employees think about their culture? The customers are gone and they're firing the employees. They're protecting as much of the investment as is left at this stage.
I meant the culture is diseased. You could have a company with a healthy culture that ends up in a very bad situation and deals with it in a more ethical way. See Airbnb. Can you imagine accepting to fire half your staff and still getting full pay?
That's a shame. I still don't quite understand how they racked up so much debt. I get that they took on tons of compacts when the nation wanted midsize suv's, but it seems like somewhere an alarm bell should have been ringing a while ago...
No to your edits. The Jetta and Civic are < 20k. The model 3 is not in a Jetta class.
The electric comes at a premium. The gasoline Kona is 20k and electric is 37. Go drive both for a week, then come back to me and say they handle the same, the acceleration is the same, the experience is the same. You won't because it just isn't...
I've extensively driven hybrid and electric models of the same cars (I have been working in a fleet related car company for years, I have access to hundreds of cars), they are as different as a flip phone and smartphone. This is the broad consensus of the staff ... it's plain and obvious when you can do 500+ miles comparisons, electric vendor X model Y > gas same vendor X model Y ... without exception (well so far at least).
We can drive any car for free (we keep at excess capacity, kinda how the supply systems work), nobody on staff rolls off with a gas car these days. Conservatives, liberals, doesn't matter, EV is just better tech.
I still claim the iphone of the electric isn't here yet. Tesla is a good blackberry, but there's something else coming ... don't know when don't know from where but the trajectory is obvious. Even the 2015 -> 2020 improvements are like moore's law level strides ... it's certainly coming soon.
You can be a late adopter on moore's right hand side of the chasm curve and be a holdout for a while, I know I am ... that's fine ... but the gears are already spinning on this one.
If you compare it to other cars without the hype but a comparable EV range, say a Hyundai ioniq (33k), Chevy bolt (36) or the Nissan leaf (32), the model 3 (40) is in the same range albeit at the high end. It also has the best range of the lot of them.
Maybe you're claiming all the other electric cars like, say, the Buick Velite or the Kia Soul EV have some hype price premium too. I really don't think most non-car people have ever heard of those models though so I doubt they can pump the price based on hype.
To claim it is like a Mitsubishi mirage at 15k is disingenuous.
Actually would be interesting to replace an existing rental company with tons of physical locations, especially since the margins to buy the cars decreases upfront cost of the otherwise premium vehicle. Low maintenance and high resale value are a bonus.
Just wouldn't work though with the baggage from the rest of the existing business.
I haven't rented for business in a few years, but every time I did the difference in cost between a "compact" and a few sizes up was trivial, perhaps two or three dollars a day. I generally jumped up to the largest sedan size because the cost was negligible and the cars were typically much nicer. Additionally, if they were out of that size, they'd bump you up to an SUV for free.
All this to say, at the pricing I've seen there is very little reason for someone renting a car to choose to rent a compact. The rental company can always upgrade people who booked a compact into a larger car, but if you have too many compacts you're screwed.
It’s probably due to corporate travel policy on rental car. Most of the time it’s limited to certain class of vehicles, and it’s a hassle to upgrade depending on the company policy (screen capture price comparisons, director/VP approval, etc.)
As an individual I tend to get the smallest car I need. I don't want to pay the extra costs of gas for a larger car. Thankfully, smaller cars don't have the embarrassing acceleration they did 5-10 years ago. I'm probably one of the few who prefer smaller cars; they're more nimble and easier to park.
They often seem surprised when I turn them down when renting.
But in the very rare case I want an SUV or a Cadillac sedan or something, the rate is bloody insane -- something like 4-5x the cost for a vehicle that costs less than double to purchase than a smaller car.
I guess maybe a Navigator depreciates more quickly than a Camry, and that's what you're paying for, given the rapid turnover of their fleets?
I don't know. Maybe I'm not the target market, but I often think "hey, I wonder if i can get something a little nicer.." and then am blown away at the multiples of price.
For SUVs, usually it's been considering a ski trip or something, so, yeah, I can see where people are "stuck".
I use Sixt whenever I can because they actually have nice european cars. Hit or miss in the US (I once got a Camry when I was trying to get an Audi A3; the Camry's a bigger car of course but I don't need a big car).
Flew into Seattle once, got a massive brand-new Volvo S90 sedan with all the bells and whistles for like $60 a day, same price other places wanted to charge me for a Camry. I'm sure if I had asked for a Cadillac from Hertz it would have been $400+ a day, and less desirable to me. shrug
I agree with you, but the places don't hold a lot of the luxury cars in inventory for this reason too. As you noted the depreciation is too large to accomodate this kind of strategy. Once in awhile you do get a deal; I flew into San Diego on a friday evening and had a mid-sized car with Enterprise, and they went into the upgrade pitch. I was half-listening until I heard they'd get me in a 7-series BMW for $5/day. I asked them to repeat it and sure enough, that's what it was. It was a rare weekend where convertible BMW's didn't rent out, so they slashed prices for a 3 day weekend rental.
It's rare but it happens. It does show that they usually rent out of that stock though at the crazy prices you do see, otherwise you'd expect to see those cut-rate deals more.
> All this to say, at the pricing I've seen there is very little reason for someone renting a car to choose to rent a compact.
I can think of roughly 2 MM possible reasons in conjunction with 1 regulatory constraint that might suggest an investment in a fleet of compacts may not have been an entirely reckless business decision at the time...not that I would have swallowed that pill myself...just saying.
Also, car manufacturers force large rental companies to buy certain mixes of cars. For example crew cab pickup trucks are a horrible category for rental companies but they still purchase them every year. To get the insanely low prices they get on their vehicles they have to play by the manufacturers rules.
It's B2B in a commodity market where competition abounds. Manufacturers like Mazda, Hyundai, etc. don't have crew cab trucks in their lineup, so is doesn't make sense that a corporation would choose to sign a contract in good faith with a manufacturer that "forces" unwanted liability on its books in exchange for volume if executives of the former didn't perceive overall net outcome as favorable.
I never said the net outcome wasn’t favorable. I said certain categories underperform other categories by a wide margin. You are assuming the goal is to maximize RPU when he actual goal is to maximize the delta between purchase price and resale price.
My whole point is that a lot of what goes on in rental doesn’t make sense unless you view it at as a business that generates used cars.
However, I doubt you really care and were more interested in making a pedantic point about how contracts are voluntary agreements between rational actors.
If you are on highways, being in a small car is a safety risk, especially if the other cars on the highway are bigger.
I rented extensively when I was in management consulting and put 30k miles annually driving home on weekends. I can be a safe driver, but i'm also put at risk by other drivers who are not safe drivers. In those cases, you want physics working for you.
So basically it's an arms race and we should keep arming ourselves with ever increasing cars to stay safe until we ourselves become a 'danger' to others?
I feel super unsafe cycling in cities next to giant cars with poor visibility.
I get your safety concerns but why for the highway? There are no cars coming from the other direction so accident risk is pretty small. At least in Europe accident are way more common in cities then on high speed Autobahns.
In most cities where I have been, there is traffic congestion and speeds are usually low, most accidents are fender-benders. It is inconvenient to get into bumps, but not life-threatening.
On highways, at least in the US, the average speed is 65-70mph. You'll see some drivers doing 90 or more regularly. At 90mph, if you are in a compact car, if a truck or SUV hits you, there is a high chance of major injury or death.
You are right there are no cars coming from the other direction, but i've seen cars get bumped from the back, then spin. I've seen cars bumped from the corner by a driver who clearly did not check their blind spot, and the small car spins.
The small car is at a huge disadvantage, especially in the US where there are massive trucks and SUVs all over the highway. There is also bullying by bigger cars/trucks on highways where they expect small cars to get out of the way and/or drive defensively.
> Serious question but what is the advantage of getting a bigger car while on a business trip?
It's an upsell. If you perceive it as better, it's useful to you. But, if you like small cars, they are annoying to park and the clerk will give you a funny look when you say you like the small car better.
Yeah, I'm curious if a Camry is mid-sized what a full size is. Taurus? Those things are absolutely massive. My Ford Focus feels big, honestly, but maybe that's because I live in a relatively urban area with pretty tight street parking?
Car categories have agreed-upon definitions; what rental companies call them is usually a size up or two from the manufactuer's (canonical) names.
For Toyota, the Yaris is sub-compact, the Corolla is compact, the Camry is mid-size, and the Avalon is fullsize. For Chevy, the Spark, Sonic, Malibu, and Impala fill the same roles. For Honda, it's the Fit/Civic/Accord (they don't make a full-size). For Nissan, it's the Versa/Sentra/Altima/Maxima.
The Honda full-size equivalent is in the Acura lineup in the US. I don't think I have ever seen an Acura at a car rental place though.
One time I had the option in the lot between a Malibu and Impala, and figuring out which one was "better" in person was pretty tough. The overall length difference per Chevy is 7 inches, which seemed largely irrelevant in person. I guess if it all went to the back seat leg room then you have a distinction for a certain market.
For reference, Sonic can be up to 35 inches shorter than a Malibu (depending on style).
The problem with those cars is that the windshield is raked so much that a lot of the front length is wasted. It's why our cadillac xts feels tiny compared to the chrysler 300 it replaced. And damn I want another 300 lol.
A lot of this and some other design inefficiencies are due to modern EU pedestrian collision safety mandates and testing, which I think is a fair compromise to make, and they have since been adopted in some other places as well but they long affected most North American vehicles due to global standardization.
Renting out your own car exists in the UK, there are a few platforms that do that. I wonder if that done right is the future, more decentralised form of car rental. After all there are a lot of cars parked on the street idle for long periods.
Even though Elon Musk seems to be believe people would do that, I doubt that. Who would want to clean out their car every time they leave it? Then inspect it for damages when they need it again? Always be forced to plan ahead when they need the car, because otherwise someone else may have rented it? It's even less convenient that just using a "floating" car sharing service.